S.P. Bharucha, J.

1. The question which we have to consider in this reference made under section 256(1) of the Income Tax Act, 1961, at the instance of the Revenue, reads thus :

"Whether, on the facts and in the circumstances of the case, the commission of Rs. 4,59,000 was wholly exempt under section 80-O of the Income Tax Act, 1961 "

2. The question arises in relation to the assessment year 1970-71.

3. Under an agreement dated April 1, 1954, "Stankoimport", Moscow, granted to the assessee sole agency for the sale of its ball and roller bearings for the territories mentioned on payment of trade commission. The assessee was required to send, under the terms of this agreement, truthful reports of the activities of competitors to Stankoimport, particularly as regards their prices, terms of delivery and technical designs. After the 10-year span covered by this agreement expired, Stankoimport addressed a letter dated February 25, 1965, to the assessee. The letter stated that Stankoimport agreed to pay commission to the assessee in consideration of technical services, as mentioned therein, which were to be furnished by the assessee to Stankoimport. The said letter required the assessee to inform Stankoimport of the various types (with dimensions) of ball bearings, roller bearings and taper roller bearings required by various industries in India from time to time. It required the assessee to advise actual users of such bearings supplied by Stankoimport in regard to the types which were most suitable for their particular machines and their proper application and lubrication. It required the assessee to render technical services to Stankoimport in regard to the class of accuracy most suitable for users of such bearings. The assessee confirmed and accepted the terms and conditions of the said letter by signing it at its foot. The assessee made an application to the Department of Industrial Development and Company Affairs, Government of India, for approval of the terms and conditions of the said letter under section 85C of the Income Tax Act, 1961. On February 3, 1968, such approval was conveyed to it. A further letter dated April 19, 1968, stated that the approval that was accorded was effective from July 21, 1966, the date on which the request for the approval had been made. The assessee received from Stankoimport a sum of Rs. 6,42,312 during the previous year relevant to the assessment year under consideration as commission for services rendered under the said letter. After adjusting proportionate expenses there against, the assessee claimed before the Income Tax Officer that Rs. 4,59,000 thereof was exempt under the provisions of section 80-O of the. The Income Tax Officer accepted the claim and assessed accordingly.

4. On November 23, 1972, the Additional Commissioner passed an order under section 263 of thebringing the said amount of Rs. 4,59,000 to tax. He did so on the ground that the conditions of section 80-O were not satisfied because (i) Stankoimport was not a foreign company; (ii) the said letter was not an agreement; and (iii) no commercial or technical services were rendered thereunder. The Tribunal, before whom the assessee went in appeal, concluded in the assessees favour after an elaborate judgment. It held that all the conditions of section 80-O were satisfied and the commission amounting to Rs. 4,59,000 was wholly exempt thereunder.

5. Section 85C was introduced into the Income Tax Act, 1961, with effect from April 1, 1966, by the Finance Act, 1966. It reads thus :

"85C. Deduction of tax on royalties, etc., received from certain foreign companies. - Where the total income of an assessee, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by it from a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India (hereinafter, in this section, referred to as the foreign company) in consideration for the use of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to the foreign company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessee, under an agreement approved by the Central Government in this behalf before the 1st day of October of the relevant assessment year, the assessee shall be entitled to a deduction from the Income Tax with which it is chargeable on its total income for the assessment year of so much of the amount of Income Tax calculated at the average rate of Income Tax on the income so included as exceeds the amount of twenty-five per cent. thereof."

6. Section 85C was deleted with effect from April 1, 1968, by the Finance (No. 2) Act, 1967, which introduced section 80-O. At the material time, section 80-O read thus :

"80-O. Deduction in respect of royalties, etc., received from certain foreign companies. - Where the gross total income of an assessee being Indian company includes any income by way of royalty, commission, fees or any similar payment received by it from a foreign company in consideration for the use of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to the foreign company by the assessee, or in consideration of technical services rendered or agreed to be rendered to the foreign company by the assessee, under an agreement approved by the Central Government in this behalf before the 1st day of October of the relevant assessment year, there shall be allowed a deduction of the whole of such income, in computing the total income of the assessee."

7. It will be seen, and it is fairly not in dispute, that the essential requirements of section 85C and section 80-C are identical. It is common ground that the assessee had obtained the approval of the Central Government under section 85C by the letters on behalf of the Central Government dated February 3, 1968, and April 19, 1968. The approval would not have been granted by the Central Government had it come to the conclusion that Stankoimport was not a foreign company or that the said letter was not an agreement or that the services to be provided by the assessee to Stankoimport thereunder were not technical services. The Central Government granted the approval because it was satisfied that the requirements of section 85C were met. The Central Government, therefore, found that Stankoimport was a foreign company, that the s; aid letter was an agreement, and that it required that the assessee should furnish to Stankoimport what were technical services. These essential requirements are common to section 85C and section 80-O. The Central Government having found in respect of the assessees application under section 85-C that the three essential and common requirements were met, the Additional Commissioner ought to have so proceeded and not held to the contrary. The Central Government was better equipped than he to decide whether or not Stankoimport was a foreign company and also, whether the services that were required to be furnished by the assessee to Stankoimport were technical services. A perusal of the said letter makes it apparent that it is an agreement between Stankoimport and the assessee.

8. We enquired from counsel what the position was in regard to the subsequent years. We were told by Mrs. Jagtiani, learned counsel for the assessee, that a reference was pending in respect of the assessment year 1971-72 but that for the assessment year 1972-73, the Additional Commissioner, having initiated similar proceedings under section 263, thereafter dropped them.

9. The question that is posed to us is answered, in the premises, in the affirmative and in favour of the assessee.

10. The Revenue shall pay to the assessee the costs of the application.